Oligopolistic Competition
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This document summarizes a system dynamics modeling project analyzing oligopolistic competition between strategic alliances in the transportation industry. The modeling approach involved 88 variables and one subscript to represent five classes of actors. Key factors analyzed included alliances' capacity offerings, ticket prices, revenues, profits, and their impact on demand realization. Preliminary simulation results demonstrated how targeting different revenue levels impacted these factors over time. The project aims to provide insights beyond traditional static analyses by capturing the dynamic competition between actors.
![Oligopolistic Competition between Strategic Alliances
AndreasGr??ler,2010
An illustrative (but real) simulation result
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overall profit[1] : test 1 1 1 1 1 1
overall profit[2] : test 2 2 2 2 2 2 2
overall profit[3] : test 3 3 3 3 3 3 3
overall profit[4] : test 4 4 4 4 4
overall profit[5] : test 5 5 5 5 5 5
4](https://image.slidesharecdn.com/oligopolisticcompetition-12887333405323-phpapp02/85/Oligopolistic-Competition-15-320.jpg)
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Oligopolistic Competition
- 1. Oligopolistic Competition between Strategic Alliances Andreas Gr??ler
- 2. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 Some thoughts about results and process of a consulting project using system dynamics ? Focus is on process ¨C Work in progress ¨C Confidentiality ? Model complexity ? Indexed variables
- 3. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 Six honest men... I Keep six honest serving-men: (They taught me all I knew) Their names are What and Where and When And How and Why and Who. Rudyard Kipling, 1902
- 4. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 Men 1 to 6 1. What: a case study in a major industry within the transportation sector 2. Where: actual client (alliance headquarter) is located in Germany but alliance is international 3. When: project started beginning 2010, still going on 4. How: a system dynamics analysis, of course 5. Why: it is a very interesting topic, methodological and content wise (OK, there is money here as well) 6. Who: me as a member of Radboud University consulting a group of consultants that consult the actual client (i.e. the alliance)
- 5. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 So, why is it so interesting content wise? Cf. Gomes-Casseres, 2006 Structure of the market Structure of players in the market One player Few players Many players Single firms Constellation of firms Traditional Monopoly Traditional Oligopoly Traditional Perfect Competition Industry Cartel Collective Competition
- 6. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 So, why is it so interesting methodologically? ? Dynamics involved in situation ¨C Classical strategy tools are static ¨C Classical economic analysis has an equilibrium perspective ? Increasing complexity of model ¨C Face validity ¨C Parameterization ¨C Interpretability ? Using more than two (or three) actors in an competitive analysis ¨C Game theory ¨C Subscripts in Vensim and their visual representation ¨C Structural rigidity in system dynamics?
- 7. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 Standing on the shoulders of giants (i) Cf. Warren, 2008
- 8. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 Standing on the shoulders of giants (ii) Cf. Bossel, 2004 Population A Population Bgrowth of A loss of A growth of Bloss of B competition GROWTH RATE A GROWTH RATE B COMPETITION EFFECT ON A COMPETITION EFFECT ON B CARRYING CAPACITYOF A CARRYING CAPACITYOF B STARTING VALUE POP A STARTING VALUE POP B
- 9. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 Finally: the model... Market SuppliersDemand 88 variables and 1 subscript (defining 5 classes)
- 10. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 The demand view Total Actual Demand Airtrafficdemand change endogeneous changes to demand exogeneous changes to demand demand changes due to population demand changes due to GDP to Market view from Market view demand changes due to travel affinity <not-satisfied demand effect industry> IniDemand effect of price on demand from Supplie r view max/min effect price price effect industry <AvgPriceIndustry><AvgIniPriceIndustry> demand changes due to seasonality demand changes due to exogenous shocks
- 11. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 The market view not-satisfied demand effect industry <Total Actual Demand Airtraffic> from Deman d view attractiveness attribute price attractiveness attribute product attractiveness attribute network Realised Demand realising demand fraction unrealised demand <Ticket Price> <capacity offered> from Supplie r view from Supplie r view to Supplie r view IniRealisedDemand to Deman d view attractiveness competitor effect of unrealised demand <capacity offered> from Supplie r view market share competitor preference price preference product preference network
- 12. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 The suppliers view AC operational AC on order ordering AC supplying AC retiring AC production delay AC lifetime seats per AC legs per AC per month seat capacity capacity offered to Market view costs per leg fixed costs from Market view capacity utilization from Market view revenues generated profit Ticket Price price change price adjustment elasticity variable costs costs per pax minimum ticket price to Market view IniTicketPrice IniACOnOrder IniACOperational <realising demand> <realising demand> costs per AC legs per month <costs per pax> growth percentage target revenue per leg profit margin revenue per leg AvgPriceIndustry AvgIniPriceIndustry to Deman d view
- 13. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 ... and a validation run 120 AC 550 Dollar/Pax 3 M Pax/month 110 AC 525 Dollar/Pax 2 M Pax/month 100 AC 500 Dollar/Pax 1 M Pax/month 3 3 3 3 3 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 2 2 2 2 2 111 1 1 1 1 1 1 1 1 1 1 0 12 24 36 48 60 72 84 96 108 120 Time (month) AC operational: validationRun AC1 1 1 1 1 1 Ticket Price: validationRun Dollar/Pax2 2 2 2 2 2 realising demand: validationRun Pax/month3 3 3 3 3
- 14. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 1.5 B 1.125 B 750 M 375 M 0 5 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 0 12 24 36 48 60 72 84 96 108 120 Dollar/month 1,500 1,125 750 375 0 5 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 3 32 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 0 12 24 36 48 60 72 84 96 108 120 Dollar/Pax 140 125 110 95 80 5 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 0 12 24 36 48 60 72 84 96 108 120 AC 2.5 M 2.125 M 1.75 M 1.375 M 1 M 5 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 0 12 24 36 48 60 72 84 96 108 120 Pax/month A simulation experiment: different target revenues Realising demand Profit Ticket price Operational capacity
- 15. Oligopolistic Competition between Strategic Alliances AndreasGr??ler,2010 An illustrative (but real) simulation result 20 B 15 B 10 B 5 B 0 5 5 5 5 5 5 5 4 4 4 4 4 4 4 3 3 3 3 3 3 3 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 2010 2012 2014 2016 2018 2020 Time (month) USD/month overall profit[1] : test 1 1 1 1 1 1 overall profit[2] : test 2 2 2 2 2 2 2 overall profit[3] : test 3 3 3 3 3 3 3 overall profit[4] : test 4 4 4 4 4 overall profit[5] : test 5 5 5 5 5 5 4